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Calculation of Profit and Loss

  • The owners of business are keen to have an idea about the net results of their business operations periodically, i.e. whether the business has earned profits or incurred losses.
  • Thus, another objective of accounting is to ascertain the profit earned or loss sustained by a business during an accounting period which can be easily workout with help of record of incomes and expenses relating to the business by preparing a profit or loss account for the period.
  • Profit represents excess of revenue (income), over expenses.
  • If the total revenue of a given period is Rs 6,00,000 and total expenses are Rs. 5,40,000 the profit will be equal to Rs. 60,000(Rs. 6,00,000 – Rs. 5,40,000).
  • If however, the total expenses exceed the total revenue, the difference reflects the loss.

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